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Jackson v Quality Loan Servicing Corp.

Statement of Grounds for Review

I. NATURE OF THE CASE AND DECISION

Petitioner Sandra Shelley Jackson (“Jackson”) filed suit in King

County Superior Court (the “Superior Court”) seeking to enjoin the sale of

her home by Respondent McCarthy & Holthus, LLP (“M&H”)(a law

firm), and Quality Loan Services Corporation (“QLSC”)(M&H’s legal

services company) who are acting together as a trustee within the meaning

of Washington’s Deed of Trust Act, RCW 61.24, et. seq. (the “DTA”).

Jackson argued, among other things, that neither defendant could be a

“neutral judicial substitute” and thus could not invoke the power of sale

under the DTA. See RCW 61.24.010(3)&(4), .020, .030; see also, RPC 5.7

(a), (b), cmmts. 1-11. The complaint also alleged “pre-sale” violations of

the DTA, declaratory relief (that the DTA was facially unconstitutional or

was being applied in an unconstitutional manner through the MERS®

assignment); injunctive relief (under the inherent power of the superior

court and not pursuant to RCW 61.24.130); quiet title; and, damages

(including wrongful foreclosure injuries created by pre-sale violations of

the DTA). See App. 1

The Superior Court issued four orders. The first order, dated June

14, 2013, dismissed M&H with prejudice. App. 2. The second order, dated

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July 26, 2013, dismissed all claims against U.S. Bank, MERS, and

JPMorgan Chase, with prejudice. App. 3. The third order and fourth orders

clarified that all remaining defendants were dismissed. Apps. 4 & 5. The

fourth order also clarified that the superior court relied upon a hypothetical

set forth during oral argument by Jackson’s attorney regarding how M&H

and QLSC commingled employees and personnel to mutually perform the

role a trustee. App. 5.

II. ISSUES PRESENTED FOR DIRECT REVIEW

1.) Whether the Trial Court erred in finding no possible claims for relief

under CR 12(b)(6) where the complaint alleged injury from the wrongful

initiation of a nonjudicial foreclosure under the DTA where the home had

not yet sold?

2.) Whether the Trial Court erred in finding no possible claims for relief

under CR 12(b)(6) where the complaint alleged QLSC and M&H were

acting together as a “biased trustee” under the DTA?

3.) Whether the Trial Court erred in finding no possible claims for relief

under CR 12(b)(6) where the complaint alleged both facial and applied

constitutional challenges to the DTA?

III. GROUNDS FOR DIRECT REVIEW

A petitioner may seek direct review in the Supreme Court of a

decision of a superior court on four possible grounds. As explained below,

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Jackson seeks direct review pursuant pursuant to RAP 4.2 (a)(3)-(4),

because this is a case involving issues where there is: a.) a conflict among

decisions of the Court of Appeals or b.) an inconsistency in decisions of

the Supreme Court; and, (further) fundamental and urgent issues of broad

public importance, requiring prompt and ultimate determination of the

application of law.

A. Statement of The Case Below

The superior court dismissed Jackson’s amended complaint for

failure to state a claim under CR 12(b)(6). See Apps. 2-5. Jackson’s

complaint sought damages, declaratory, injunctive, and quiet title relief

based upon the initiation and continuation of nonjudicial foreclosure

proceedings under the DTA which had not yet culminated in a sale. See

App. 1. Jackson’s complaint also challenged defendants use of the DTA to

bring a nonjudicial foreclosure based on Jackson agreeing to a MERS four

party deed of trust “boilerplate” form, which permitted foreclosures to

occur without compliance with Washington’s DTA.1 Id. Jackson alleged

1 See e.g., Amended Complaint, (Appendix 1) 7:19-22: “[o]n or about March 20, 2006 Petitioner signed a boilerplate MERS four party deed of trust between herself (as borrower), Cameron Financial Group, Inc. DBA 1st Choice Mortgage (as lender), MERS (as beneficiary), and Fidelity National Title (as trustee).” Id., at 7:19-22. Further, “[t]he MERS four party deed of trust contemplates four parties.” Id., at 24-25. Moreover, “[t]he DTA does not apply to a four party deed of trust. Id., at 25. Additionally, “[o]n information and belief MERS never held Jackson’s debt obligation (the note). Id., at 8:7. Finally, “[p]laintiff Jackson did not and does not authorize any private sale of her home that does not comply with the DTA”. Appendix 1, at 9:12-13. Petitioner alleged:

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all defendants had not complied with the DTA by utilization of M&H &

QLSC as a trustee, when they knew that as a trustee M&H and QLSC

would attempt to illegally take Jackson’s home. (App. 1) at 18-19. Jackson

specifically claimed the trustee (QLSC and M&H acting together) was

not acting as a neutral judicial substitute and therefore had violated the

duty of good faith owed Jackson.2

M&H moved for dismissal; arguing that technically (by statute)

QLSC and M&H were separate companies and the court could not treat

them as one. See App. 7, see also, App. 2. Jackson responded the court

should treat QLSC and M&H as one entity acting as a trustee under

several court decisions interpreting the DTA and Constitutional Law. See

App 8 & 9. The superior court decided the longstanding corporate issues

defendant trustee breached the Deed of Trust along with the Deeds of Trust Act by failing to strictly follow the requisite procedures of the DTA. Id., at 18-19. 1 2 Petitioner specifically alleged in her complaint that: “[d]efendant QLSC is owned, managed, controlled, or cooperatively owned managed or controlled by [the law firm] McCarthy & Holthus.” Id. at 4:5-6. Further:

2McCarthy & Holthus, law firm, owns, operates, or has a substantial interest in the operations and workings of QLSC, and specializes in representing banks, which claim to be beneficiaries, services, or trustees for investors who commonly participate in private sales of homes, like plaintiffs, in the state of Washington.

2Id at 7-11. Additionally: 2QLSC performs law related services for the clients of McCarthy & Holthus while acting as a biased trustee. McCarthy & Holthus and QLSC commingle employees, clients, customers, and business interests so that McCarthy & Holthus owes a fiduciary duty to QLSC and the purported beneficiary of the note.

2Id., at 11-14. Moreover, petitioner pled that, “the commingling creates a situation where QLSC and McCarthy & Holthus are acting as a single entity.” Id., at 14-17. 2

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controlled and dismissed Jacksons’ complaint under CR 12(b)(6). App. 2.

QLSC and U.S. Bank (the purported beneficiary) then moved to dismiss

the complaint against them under CR 12(b)(6). App. 10. Jackson again

responded the trustee failed to act as a neutral judicial substitute by

delegating legal decision-making authority to M&H and the trustee had

not complied sufficiently with the DTA to invoke the statutory power of

sale. App. 11.

At oral argument, Jackson’s counsel asked the court to consider the

a hypothetical which had actually occurred. First, when Jackson’s lawyer

called QLSC Washington phone number, it was answered by QLSC in San

Diego. Jackson’s lawyer eventually spoke to Dan Goulding who indicated

he worked for M&H, but was assigned to QLSC as “inside counsel.” An

email exchange ensued between the lawyers. App. 6. At the bottom of

each QLSC email was a disclaimer, which stated:

LEGAL DISCLAIMER: Please be advised that while the opinions expressed herein are provided by an attorney employed by Quality Loan Service Corp., Quality Loan Service Corp. is not a law office. The legal analysis of any situation depends on a variety of factors and the opinions expressed herein could change based on the specific facts of any given situation. The information and opinions set forth herein are intended as general information only, and are not intended to serve as legal advice or as a substitute for legal counsel. If you have a question about a specific factual situation, you should contact an attorney directly. Should you desire to obtain a full legal opinion we would

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be happy to submit your inquiry to McCarthy & Holthus, LLP for handling.

Id. An inference from this disclaimer is that QLSC uses M&H to decide

legal issues regarding the application of Washington’s DTA to the facts of

those nonjudicial foreclosures for which it has been named trustee by

MERS affiliated entities.

B. Criteria for Direct Review is met under RAP 4.2(a)(3)-(4).

1. RAP 4.2(a)(3) Is Met Because There Is Inconsistent Authority and A Conflict of Decisions. a. There Is Inconsistent Supreme Court Authority As Between Miesel, Cox and Klem. 8

In the first motion to dismiss, M&H claimed it was not liable for

QLSC’s acts and omissions because of QLSC’s separate corporate

identity. M&H relied exclusively on the Supreme Court’s decision in

Meisel v. M&N Modern Hydraulic Press Company, 97 Wn.2d 403, 410

(1982). See App. 7. The superior court adopted this rationale as the basis

for dismissing Jackson’s claims against M&H. See Apps. 2-4.

Under this court’s decision in Klem, whoever is the DTA trustee

of Jackson’s Deed of Trust (QLSC or M&H or both) owes Jackson a duty

of good faith3 with regard to the initiation and performance of nonjudicial

foreclosures under the DTA. Klem v. Washington Mut. Bank, 176 Wn.2d

771, 295 P.3d 1179 (2013); Cox v. Helenius, 103 Wn.2d 383, 387, 693 P. 3 RCW 61.24.010(4).

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683 (1985). RCW 61.24.010 (3)-(4)(prohibits fiduciary duty with

interested parties, imposes duty of good faith to both borrower and

beneficiary); see also, RCW 61.24.020 (beneficiary and trustee cannot be

same party); cf., RCW 61.24.163 (8), (10). This includes acting as a

“neutral judicial substitute.” Klem, 295 P.3d at 1188; see, Wash. Const.

Art. 1 § 10. While QLSC claimed in this lawsuit to be the trustee,

Jackson’s complaint stated facts that QLSC and M&H acted together as

the trustee performing illegal private sales under Washington’s DTA for

the benefit of their clients. App. 1. Under this scenario QLSC is not

merely a corporate “person” acting as a trustee, it is a partner (tantamount

to a legal assistant or limited license practitioner) with M&H (attorneys

representing remaining defendants seeking to take title and possession of

Jackson’s property) in presiding as a judge in state sanctioned proceedings

intended to deprive Jackson of her home.4

M&H (a law firm, which represents lenders, servicers, and

purported beneficiaries) cannot be a neutral judicial substitute (under the

facts alleged by Jackson). App. 1. M&H commingled their employees and

activities with QLSC in performing QLSC’s role as a trustee under the

DTA in a manner necessary to performance of M&H fiduciary duties to its 4 See Short v. Demopolis, 103 Wn.2d 52, 62, 691 P.2d 163 (1984) (Supreme Court has exclusive, inherent power to admit, enroll, discipline, and disbar attorneys); Graham v. State Bar Ass'n, 86 Wn.2d 624, 631, 548 P.2d 310 (1976) (power to regulate practice of law lies within sole jurisdiction of Supreme Court).

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MERS affiliated clients. App. 1. i.e., Jackson contends both QLSC and

M&H: (1) are subject to the Rules of Professional Conduct

(RPCs)(including those regarding conflicts of interest)5(specifically those

contemplated by RPC 5.7) and/or, (2) have entered into a client-lawyer

relationship among themselves and with a purported beneficiary;6 and, (3)

therefore cannot act (as a matter of law) under the DTA, act as an

impartial judicial substitute (given their loyalties and contractual duties to

all parties, except borrower, in this nonjudicial process). App. 1

If Jackson is correct, this creates a conflict of interest situation in

these DTA sale procedures. See Cox, at 390 (Trustee should resign where

conflict exists). Jackson urges the judiciary is constitutionally bound to

stop the trustees’ illegal and inequitable exercise of judicial power;

notwithstanding any corporate shield defense. The judiciary’s obligations

in this regard are based on Separation of Powers principles, including but

not limited to those set forth in Art. 4, §§ 1 and 6 and Jackson’s right to

due process, which includes the right to a fair hearing where she has a

meaningful opportunity to prevent evidence.7

5 “A lawyer not admitted in this jurisdiction is also subject to the disciplinary authority of this jurisdiction if the lawyer provides or offers to provide any legal services in this jurisdiction.” RPC 8.5 (a). 6 See RCW 61.24.010 (3) & (4); RPC 5.7 & Cmt.1. 7 See e.g. State v. Davis, 10 141 Wn.2d 798, P.3d 977, 994 (2000) (The failure to accord an accused a fair hearing violates the minimal standards of due process.). See also, In re

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Thus, in the decisions below, the statutory corporate principles of

Meisel collided with those constitutional principles enunciated in Cox and

Klem. The inconsistencies in authority relate to the rights, duties, legal

status, and overall acceptable “neutral” role of a post-Cox “foreclosure

mill” (e.g., doing litigation, evictions, legal counsel, debt collecting,

trustee services, mediations, recording documents, power of attorney and

acting as a law firm under two business closely related and affiliated

business entities), acting as a judicial substitute.

Direct review is needed to determine if applying Miesel serves as a

proper basis for the superior court’s dismissal of Jackson’s Complaint in

light of this Court’s holdings in Klem, Cox (and now the Court of Appeals

holdings in Walker (see infra. § III.B.1.b)). The superior court’s dismissal

of Jackson’s complaint should be reversed by the Supreme Court to show

that Cox and Klem control over Miesel.

b. There Is A Conflict Amongst the Decisions Washington Courts of Appeal and Federal District Courts (Interpreting Washington Law)

In Walker the Court of Appeals held a trustee who fails to

adequately inform itself of its authority to foreclose has violated the duty

of good faith owed to the borrower and that borrowers may bring suit for

“wrongful foreclosure,” which the court indicates is more accurately

Reismiller, 101 Wn.2d 291, 296-297, 678 P.2d 323 (1984) (Even in a prison setting, with limited evidentiary requirements, there must be some basis for findings).

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described as “a claim for damages arising from DTA violations,” even

where no sale has yet occurred or the sale has been abandoned. Walker v.

Quality Loan Service Corp. of Washington, No. 65975-8-I, Slip Op.,

Wash. Ct. App. (Div. 1, Aug. 5, 2013).

The fact pattern in this case mirrors that of Walker but with

opposite results reached by the superior court here and the Court of

Appeals in Walker. Compare, generally, App. 2-5; with, Walker, supra.

Here (as in Walker) QLSC relied, inappropriately, on an assignment by

MERS to determine that the assignee was a lawful beneficiary. App. 1.

QLSC looked no further. Id. In both Walker and this case a “cursory

investigation” would engender doubt as to (if not show outright) the falsity

of: the putative beneficiary’s claim to be the: “holder of the instrument or

document evidencing the obligations secured by the deed of trust,

excluding persons holding the same as security for a different obligation.”

RCW 61.24.005(2) (definition of beneficiary); see also, Bain v. Metro.

Mort. Grp., 175 Wn.2d 83, 285 P.3d 84 (2012)(MERS is not a beneficiary

within meaning of DTA). The notice of trustee’s sale in this case, which

was recorded months after Bain was decided, (App. 1) illustrates not only

that QLSC relied on MERS assignment (notwithstanding Bain), but also,

QLSC’s disdain for this court's concern that an assignment from MERS

would fail to convey any real interest.

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Walker represents progress on the “pre-sale” question, which is

either a split or reversal of previous decisions (mostly unpublished)

between or within the Division One Court of Appeals and the federal

district court for the Western District of Washington. In Walker:

We recognize our disagreement with Vawter v. Quality Loan Service Corp. of Washington, where the United States District Court for the Western District of Washington reached a contrary result, holding that "the DTA does not authorize a cause of action for damages for the wrongful institution of nonjudicial foreclosure proceedings where no trustee's sale occurs." To reach this conclusion, the court relied upon Pfau v. Washington Mutual, Inc. and Krienke v. Chase Home Finance, LLC, which were decided before the legislature enacted RCW 61.24.127. Further, the court decided Vawter before our Supreme Court decided Bain. We also disagree with the reasons that the court identified to support its decision.

Walker, Supra. Just a year prior, division one (in an unpublished opinion)

decided Grant v. First Horizon Home Loans, No. 66721-1-I, Slip Op.,

Wash. Ct. App. Div. 1 (Div. 1, May 29, 2012) (unpublished). Therein

Division One distinguished its decision from W.D. Wash.’s Vawter v.

Quality Loan Service Corp. of Washington, 707 F.Supp.2d 1115 (W.D.

Wash. 2010). Prior to 2012’s Grant’s unpublished opinion (as well as,

Bain, supra., Klem, supra. and Walker, supra.) Washington’s Courts of

Appeal issued unpublished opinions holding in some part that no cause of

action existed without a sale; while these decisions were not supposed to

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be part of Washington’s common law, lower courts and W.D. Wash.

reasoned they were evidence of how the DTA must be interpreted.

2. RAP 4.2(a)(4) Is Met Because There Are Several Fundamental and Urgent Issues of Broad Public Import Necessitating Immediate and Direct Review.

In Bain and Klem the Supreme Court announced the issue of taking

private homes from their owners is one of broad public import and

interest. Indeed, even where the impact on Washington property owners

has been applicable only with regard to a particular piece of land,

Washington courts have firmly stated their concern that the judiciary will

protect property from being stolen. See Klem, at note 10.

If, as alleged here (App. 1), the DTA is unconstitutional, then

hundreds of thousands of Washington homes will have been taken from

their owners illegally and the legal effect may be that such sales will be

void or voidable. Moreover, if the issue is not promptly resolved many

more homes will be taken and legal impact aggravated.

The holdings of Cox (supra.) and Klem (supra.) stem from a deep

rooted conviction that neutral judges or neutral judicial substitutes must

exercise their “judicial power” on behalf of the State of Washington.

While both Cox and Klem 8 discuss the constitutional and equitable

considerations by which the DTA must be construed, neither case gets to 8 In Klem, this court admits as much with respect to certain State Constitutional considerations. See Klem, at FN 10 & 11.

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the heart of proper allocation of judicial authority; namely, whether the

legislature can, under the provisions of Washington’s Constitution, create

such judicial substitutes to decide issues involving the title and possession

of Washington land. See e.g., Article 4, § 1; see also, Article 4, § 6.

(“...The superior court shall have original jurisdiction in all cases at law

which involve the title or possession of real property...”).

Petitioner maintained below that the DTA violates Washington's

Constitution by: (1) usurping the original enumerated jurisdiction of the

Superior Courts in regard to real property disputes in favor of private

trustees; (2) denying borrowers due process rights to a fair process before

being deprived of their property via state authority; and (3) permitting

trustees to summarily decide real property disputes without a record of

grounds for the decision requiring Superior Courts to the exercise

appellate jurisdiction which cannot be performed in the absence of a

record. See App. 1.

Jackson seeks, among other things, a declaration that the

legislative and executive branches cannot interfere with enumerated

constitutional grants of original jurisdiction to the Superior Court. App. 1.

Petitioner had the right to make such a request to the superior court and

this Court because constitutional division of government is for, among

other things, the protection of individuals’ against centralized authority

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and abuses of power by the State government. App. 1. Washington Law

recognizes such “misuse of power” can occur through an abuse of

statutory power; especially where, as here, the statute is facially

unconstitutional. See Klem, at note 11. Jackson asked the court below, and

seeks to have this Court declare that she enjoys a Constitutional right to

have her case involving the title and possession of her real real property

decided by a Washington superior court and not a trustee, who

unconstitutionally, was given judicial power by the legislative and

executive branches of government.

The Supreme Court’s resolution of the conflicting authority

regarding whether claims can be made for damages where a sale has not

been consummated is also an urgent and important issue, which requires

prompt resolution. Currently, trustees have every incentive to file sales

which do not comply with the DTA because they have not been held liable

for damages so long as they do not complete the illegal sales process.

There are also other good and urgent reasons for this Court to

invoke its recent holdings in Bain, Klem, and Schroeder to let the MERS

affiliated industry and this State’s judges know trustees can and will be

held liable if its pre-sale conduct causes damages to home owners which

are otherwise actionable under Washington law. See Schroeder v.

Excelsior Mgmt. Grp. LLC, 177 Wn.2d 94, 297 P.3d 677 (2013); Bain,

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supra., Kelm, supra. Further, prompt resolution of the issues surrounding

trustee foreclosure mills is necessary to protect the legal profession, the

integrity of the judicial system, and curb abuse of power granted under the

DTA and therefore is of broad public importance. The sheer volume,

contentious nature of of this litigation and import of the underlying issues

requires immediate resolution.

C. Conclusion

For the aforementioned reasons, this court should grant direct

review of this appeal.

RESPECTFULLY SUBMITTED this 26th day of August, 2013.

_________________________________

Scott E. Stafne, WSBA 6964

_________________________________

Joshua B. Trumbull, WSBA 40992 Attorney for Petitioners Stafne Trumbull, LLC

239 North Olympic Avenue Arlington, WA 98223-1336

PH: 360-403-8700 FAX: 360-396-4005